AVN has posted 3QCY21 consolidated NPAT of PKR156mn (EPS: PKR0.61), down 51% yoy and 36% qoq. This takes the 9MCY21 net profits to PKR642mn (EPS: PKR2.50), up 55% yoy, The result has come in well below our expected EPS of PKR2.60, where the major deviation is lower-than-expected revenue and other income.

Key expectations for 3QCY21 results:         

Net Sales have declined by 25% yoy but are up 11% qoq to PKR1.22bn. The yoy decline in revenue is majorly due to lower contracts being executed during the quarter.

GMs in 3QCY21 have declined by 1.6ppt yoy (though up 1.6ppt qoq), which is largely contributed by lower topline and increased variable fixed overheads (salaries and other fixed expenses). GMs are lower than our expected margins of 28.9% in 3Q.

AVN has posted other income of PKR98mn, up 105% yoy but down 57% qoq. This is also lower than our expected income of PKR276mn. Lower-than-expected exchange gains could be attributed.

Among other line items (i) finance cost has declined by 26% yoy to PKR31mn in 3QCY21, (ii) distribution expenses have increased to PKR195mn, up 61% yoy, where higher salaries and more travel expenses have elevated total costs, and (iii) effective tax rate has clocked in at 15% vs. 4.5% SPLY.

AVN has posted significantly lower result than our expectation. The lower recognition of revenue of backlog of orders have led to the disappointment. There is a possibility that the company will recognize more revenues in the next couple of quarters, as we understand that expected order duration is 9-12 months and AVN has indicated previously that it has large backlog of orders. We reiterate our liking for the stock with a TP of PKR232/sh.

Courtesy – Intermarket Securities Limited.